Introduction

conomic co-operation with neutral countries Austria, Switzerland, Finland and Sweden had an important place in the foreign economic relations of Czechoslovakia after 1945, even though their political systems were different. Slovakia also had an important role in the co-operation with neutral countries after the end of the 1960s, as part of post-war Czechoslovakia. After the constitutional changes in Czechoslovakia in 1969, Slovakia represented to a considerable extent an independent administrative and economic unit with its own government and parliament. This fact enables us to evaluate the development specifically of Slovakia's relationships with neutral countries. From the end of the 1960s we also have at our disposal statistical information about Slovakia's foreign trade. Its industrial potential grew approximately thirty-fold between 1945 and 1989 and its share of Czechoslovak industrial production grew from about 10 per cent to 29 per cent. In this connection, its share in foreign trade grew as well. The number of inhabitants saw an increase in this period from 3.2 million to 5.2 million, which was about the same as Finland. The economic structure of Slovakia also had many features in common with the neutral countries.

Political changes and economic relations between Slovakia and neutral states, 1945–53

Between 1945 and 1948 Slovakia had favourable conditions for co-operation with neutral European countries with free market economies, namely with Austria, Finland, Sweden and Switzerland. Czechoslovakia very quickly revived its rich pre-war trade relationships with these countries. The influence of the Soviet Union in post-war Czechoslovakia was considerable, but it was indirect, and only marginal in the economy.

Introduction

Sweden's self-declared neutrality had to pass three tests in the period 1945–52. In this chapter I will examine the credibility of Swedish neutrality in the light of three important trials during the first six years of the Cold War: the Credit and Trade Agreement with the Soviet Union; participation in the Marshall Plan; and, finally, how Sweden dealt with the American embargo policy against the Soviet Union and its satellites.

The question of how neutral Sweden was during the Cold War cannot be answered for a simple reason: neutrality only applies to a (formal) state of war and a cold war is not a war in the sense of international law. Legally there is little confusion about the rights and duties of neutral states in times of war: they were laid down in 1907 at the Convention on Land and Sea Warfare in The Hague and have never been fundamentally changed. But there are, on the other hand, no rules of international law governing how a neutral state should behave in times of peace. So any scholar wishing to test the neutrality of Stockholm in the period after 1945 should look at the Swedish policy as though it was (or pretend that it was) carried out against the background of a situation of international war. In order to analyse Swedish politics in the Cold War we should theoretically assume that a war was being fought and judge Swedish political behaviour in that light.

Neutrality in wartime is the ultimate assertion of national sovereignty, but it is much less clear what neutrality means in peacetime. However, in the Cold War confrontation, the United States saw neutral countries as potential loopholes through which the Soviet bloc might obtain advanced Western technology. As a consequence, American economic warfare against the Soviet bloc represented a challenge to the governments of small neutral countries such as Ireland. During the Second World War, Ireland had come under considerable pressure from both Britain and the United States to abandon its neutrality which those countries maintained favoured the Axis powers. However, the Irish government remained steadfastly committed to neutrality, because of the highly symbolic nature of this policy as an expression of the country's struggle to achieve full sovereignty from Britain in the inter-war period. At the same time, Irish neutrality was primarily pragmatic. In contrast to other wartime neutrals, Ireland was virtually defenceless owing to a lack of strong armed forces and air defences, but a different policy might have divided the country, potentially leading to a renewal of the civil strife of the 1920s. As a consequence, Ireland relied on the government's able diplomacy to maintain neutrality by placating both sides of the conflict.

While other small Western European countries such as Belgium, Denmark, the Netherlands and Norway decided to abandon their traditional neutrality in favour of Western economic co-operation and integration in the immediate post-war period, Ireland continued to pursue an isolationist economic policy regime.

Because of Poland's membership in the Council for Mutual Economic Assistance (CMEA), commercial exchange with neutral states during the Cold War period was of particular importance for the economy of the country. Austria, Switzerland, Sweden and Finland played an important role in this co-operation. Poland's commercial contacts with the four states had quite a long history, as they commenced with the ending of the First World War, that is, the moment Poland regained its independence after an almost century-long period of oppression.

Economic relations with the four countries listed above were re-established immediately after the end of the Second World War, but beginning in the 1950s the mutual commercial exchange weakened. The Cold War, autarchic tendencies in the foreign policies of communist states, as well as embargoes imposed by capitalist countries on a growing group of goods hit Polish commercial exchange with capitalist states. Consequently, during the years 1950–70 imports from these countries decreased on average by approximately 10 per cent. During this time imports from neutral states diminished as well.

On the other hand, from the early to the mid-1970s commercial exchange with neutral states, as well as with the members of the European Economic Community (EEC) and the United States, grew steadily. This was the result of the particular foreign policy pursued by the group of technocrats who achaved leadership positions in the communist party. They tried to boost Poland's economic growth by forcing the import of goods from the so-called ‘second financial area’, that is from outside the communist bloc.

Austro-Hungarian economic relations go back many centuries. Geographical proximity, long historical coexistence and differences in natural resources could account for close economic ties. Austria had been the most important partner in Hungarian foreign trade at least from the nineteen century until the 1930s. About 75 per cent of Hungarian trade was conducted with the western part of the Austro-Hungarian Monarchy before 1918. Even in the inter-war years Austria absorbed a significant portion of Hungarian exports. Only the expansion of Nazi Germany pushed Austria back to second place in Hungarian foreign trade from 1934 on. Economic ties, however, become insignificant in the years following the Second World War. Centuries-old relations were reduced to a minimal level, to simple barter. From the 1950s to the 1980s Austria's share in Hungarian foreign trade hardly exceeded 3–5 per cent, while Hungary's share in Austrian commerce was even smaller: it stagnated around 1.2–1.5 per cent (see table 9.1).

This chapter describes the most important stages of improving political, commercial and financial relations after 1945. In the 1950s and 1960s foreign trade became subordinated to the needs of forced industrialization of the planned economy. Imports from the capitalist countries had to supply the missing resources, advanced technology and investment goods that were not to be obtained trough CMEA co-operation. From the 1970s increasing liquidity problems made Hungary more dependent on Austria as a credit and investment source.

The reconstruction of bilateral relations, 1945–64

The scope of action in Hungarian foreign policy was broadened only very slowly in the first years after the Second World War, with the country having diplomatic relations only with thirty-two states even in 1954.

Introduction

After the Second World War, Yugoslavia had a particular political and economic position in the relations between the East and the West, a specific situation which stemmed from the revelant historical circumstances and only later from the actual measures taken by the Yugoslav authorities. This intermediate position had very diverse manifestations, in particular in the area of international economic co-operation.

Looking from today's perspective, two specific events have to be considered when dealing with Yugoslavia's position in the international environment. They were milestones in the country's internal political development and therefore set out the general features of Yugoslavia's integration in the European economic area. The first was the conflict with the Soviet Union and the resulting political and economic reorientation of Yugoslavia. Consequently, it was also the beginning of Yugoslavia's efforts to change the rigid centrally planned economic system, and abolish state monopoly in foreign trade, etc. The second milestone occurred in the mid-1960s, when the economic reforms led to a major liberalization of foreign trade.

In this chapter I wish to present only selected elements of the Yugoslav foreign trade system. At the end, I will outline some final conclusions about Yugoslavia's position in the European economic area from the point of view of foreign trade flows.

The consequences of the conflict with the Soviet Union

After 1945 Yugoslavia embarked on a path of radical social and economic transformation incorporated under the term ‘socialist revolution’. This inevitably led also to a changed economic position for the country internationally compared with the pre-war situation. It became a centrally planned economy with an autarchic tendency.

After the Second World War the Communist Party of Austria (CPA) was the only communist party in Western Europe to build up a network of successful business enterprises. These companies utilized the position of Austria, which found itself at the intersection of two opposing world systems, to conduct profitable trade with Eastern Europe. Between 1945 and 1955, when Austria was occupied by the forces of the Soviet Union and the Western Allies, the business of these companies flourished. Also after the conclusion of the State Treaty by which Austria achieved neutrality status the companies continued to be successful despite the fact that Austria had been integrated into the Western economy. It is extremely difficult to ascertain or even to uncover the activities of this ‘CPA business Empire’ or to gauge the extent of its position in Austria's trade with Eastern Europe.

The CPA was and still is tight lipped about its business empire. Political opponents argued and still argue controversially against the party's business practices. Attacks against the companies became more fervent with their continuing success. However, these strongly ideologically tainted criticisms fail objectively to assess the role these party-associated companies played.

During the Cold War the political opposition claimed that the CPA-run companies used their trading success with the Eastern bloc to undermine the Austrian economy by trying to make it dependent and thus destabilize the political system. In later years newspaper articles repeatedly tried to prove the existence of not inconsiderable fortunes possesed by a party which by then had lost all political significance.

Introduction

Even now, the foreign economic relations and foreign trade of the East Central European countries have not been sufficiently researched. The literature review for my doctoral thesis on the Polish, Czechoslovakian and East German economies revealed a tendency to neglect foreign trade. This is especially true for foreign trade between East and West, as the contemporary view ‘for both sides’ in the Cold War was that this was a delicate subject, for political reasons. In particular, quantitative data on this sector are seldom to be found. It was only towards the end of the 1980s that foreign trade and economic relations between the socialist and the capitalist economic blocs slowly gained interest for researchers. Even today, only very few research centres deal intensively with this subject. In most cases the results of this research have not yet been published. This stems from four reasons:

1. Previous literature, particularly Western, assumed that, as a result of Poland and Czechoslovakia's rejection of the Marshall Plan in July 1947, the economic embargo by the West from March 1948, and the beginning of the Korean War in the summer of 1950, the value of trade and the intensity of economic contacts between the East Central European countries and the countries the other side of the Iron Curtain was negligible compared with similar relationships with other parts of the world.

2. To date there have been only very few research results pertaining to the question of the foreign economies of the socialist countries in general.

This volume explores economic relations between socialist planned economies of Central and East European countries and capitalist market economies of neutral states in Europe during the Cold War. It focuses on the significant role of neutral countries as path-breakers in building East–West contacts.

Economic historians have mainly studied relations between the leading Western states and the Soviet Union during the Cold War era, but have so far paid scarce attention to the significance of neutrality in the European context during the second half of the twentieth century. For instance, although affected by the ‘Iron Curtain’, economic relations continued between socialist countries and neutral Austria, the only state in East Central Europe with a functioning market economy during the Cold War. This is of special significance for Austria since three of the socialist planned economies had been successor states of the same Habsburg Monarchy from which the Republic of Austria had also emerged. Thus Austrian neutrality, nourished by geographical closeness and the long common history of Central and South-East European countries, was of considerable importance in making the ‘Iron Curtain’ more permeable than is generally assumed. In a similar way neutral Finland's proximity to the Soviet Union and the socialist countries of Eastern Europe engendered trade and financial relations between its market economy and the planned economic systems in spite of restrictions imposed by the Cold War. For comparison, we have also included in our studies the economic relations of neutral Sweden, Switzerland and Ireland with socialist planned economies under Cold War conditions, thus encompassing all European countries with neutrality status.

Introduction

Lying at the junction between East and West, Austria played a special role in establishing contacts and mediating between the two blocs in the years from 1945 to 1989. In this context, the ‘Iron Curtain’ is seen not only in the narrower sense of the technical closed border, erected by the Soviet Union and its satellite states, but as a parcel of demarcatory measures taken equally by the Western side (withholding support and loans for Eastern Europe 1945–7, exclusion from the Marshall Plan 1948–52, the COCOM embargo) and by the Eastern side (active strategy of delinking under socialist auspices).

The precise demands on and possibilities of the Austrian intermediary role were brought about by the political and economic backdrop. From an Austrian perspective, the State Treaty (1955) and the country's ensuing neutrality set a crucial political course for forming relations with the Eastern bloc. From the perspective of the eastern neighbouring states, breaks and ruptures stood to the fore, dominated by the respective domestic events such as the communist seizure of power (1945–8); the reforms and uprisings, respectively, after Stalin's death (1953); the Prague Spring and its suppression (1968); and martial law in Poland (1981). Furthermore, bilateral relations were overshadowed by the relations between the world powers which developed from the co-operative phase immediately after the Second World War (1945–6/7), via Cold War (1947/8–62), détente (1962–80) and the Second Cold War (1980–90), until the collapse of the Soviet Union and the break-up of the Council for Mutual Economic Assistance (CMEA) and the War-saw Pact in 1991 put an end to the bipolar phase.